Chapter 08 – Review of Economic Developments- Highlights of Economic Survey 2016-17

Chapter 8 of the Economic Survey 2016-17 deals with a comprehensive review of the Indian economy. This chapter provides huge data related to various macro economic variables. It also gives an insight into government’s commitment in various sectors such as education, health, climate change, social development and so on. Thus, some areas of this chapter from the Economic Survey is of utmost importance to an aspirant from both UPSC Prelims and Mains examination.

The Indian economy is estimated to register a GDP growth rate of 7.1 per cent in 2016-17. (Though the Economic Survey 2016-17 states that there might be downward revision owing to the Demonetization exercise in November, after which there was a slowdown).

SECTORAL GROWTH ACCORDING TO ECONOMIC SURVEY 2016-17

Improved performance of Primary sector:

Growth of agriculture & allied sectors improved significantly in 2016-17.

Moderation in the Secondary sector growth:

The growth in industrial sector, comprising mining & quarrying, manufacturing, electricity, gas & water supply, and construction sectors moderated in 2016-17.

This is in tandem with the moderation in manufacturing, mostly on account of a steep contraction in capital goods, and consumer non-durable segments of Index of Industrial Production (IIP).

* The eight core infrastructure supportive industries, viz. coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 38 per cent in the IIP.

The contraction in mining and quarrying largely reflects slowdown in the production of crude oil and natural gas.

Continued dominance of Tertiary sector:

According to Economic Survey 2016-17 ,the service sector continued to be the dominant contributor to the overall growth of the economy, led by a significant pick-up in public administration, defence & other services, that were boosted by the payouts of the Seventh Pay Commission.

OTHER MACRO ECONOMIC VARIABLES:

Fixed investment rate has been declining since 2011-12. Government, in co- ordination with the Reserve Bank of India and other stakeholders, has taken a number of steps to improve the ease of doing business and to improve the balance sheet positions of banks and firms.

It is the 23.8 per cent growth in government final consumption expenditure that is the major driver of GDP growth in the current year from the demand side.

How did the trade deficit decline?

1. Steeper contraction in imports, compared to exports
2. The decline in merchandise trade deficit helped improve the position of net exports of goods and non-factor services in the national accounts.

FISCAL DEVELOPMENTS:

The buoyancy of non-debt receipts of the Union Government, consisting of net tax revenue, non-tax revenue and non-debt capital receipts during April-November 2016 supported fiscal rectitude.

Why was there a growth in Revenue expenditure?

1. The salary component of the revenue expenditure increased by 23.2 per cent owing to the commitments under the Seventh Pay Commission.
2. Increase in subsidies, especially a 21.6 per cent surge in food subsidy.
3. increase of 39.5 per cent in the grants for creation of capital assets (GCCA) .

Outstanding liabilities:

The growth in the total outstanding liabilities of the Union Government remained closely similar during 2014-15 and 2015-16.

*The total outstanding liabilities of the Central Government are composed of internal debt, other internal liabilities like provident funds, small savings, etc. and external debt.

INFLATION:

Headline inflation as measured by the Consumer Price Index (CPI) remained under control.

The average CPI inflation declined to 4.9 per cent in 2015-16 from 5.9 per cent in 2014-15. It was 4.8 per cent during April- December 2016.

The average inflation based on the wholesale price index (WPI) declined to (-) 2.5 per cent in 2015-16 from 2.0 per cent in 2014- 15. The downward trend, however reversed during the current financial year partly due to

1. Impact of rise in global commodity prices and
2. Partly owing to adverse base effect.

Food Inflation:

The inflation in India is repeatedly being driven by narrow group of food items. Pulses (mainly tur and urad) continued to be the major contributor of food inflation.

• On account of the volatility of prices of pulses, a Committee on ‘Incentivising Pulses Production Through Minimum Support Price (MSP) and Related Policies’ was set up under the Chairmanship of Dr. Arvind Subramanian, Chief Economic Adviser, which submitted its report on 16th September 2016.

• To increase productivity of pulses, a new extra early maturing, high yielding variety of Arhar (Pusa Arhar-16) has been developed, to be made available for farmers in the next Kharif season.

Sugar prices also firmed up on account of lower production and hardening of price in the international market.

Core Inflation:

CPI based refined core inflation (exclusive of food & fuel group, petrol & diesel) has been averaging around 5 per cent in the current fiscal year.

Major contributors of the core inflation:

• Inflation for Pan, tobacco & intoxicants,
• Clothing & footwear,
• Housing and Education groups
• Transport & communication
• Higher gold price in the international market

MONETARY MANAGEMENT & FISCAL INTERMEDIATION:

Amendment of RBI Act 1934:

The amended Act provides for inflation target to be set by the Government, in consultation with the Reserve Bank, once in every five years and further provides for a statutory basis for the constitution of an empowered Monetary Policy Committee (MPC).

* The Government has fixed the inflation target of 4 per cent with tolerance level of +/- 2 per cent for the period beginning from 5th August, 2016 to March 31, 2021

* The Government has also notified the constitution of the MPC on 29th September 2016.

The Economic Survey 2016-17 mentions that the banking performance has been rather subdued with deteriorating asset quality. At the same time, Non food credit grew by 10 percent and lending to industrial sector remained low at 1 percent.

Measures to strengthen Corporate Bond market: (One need not go into the details here, just remember Khan committee and masala bonds for UPSC Prelims)

Khan committee recommendations, implemented by RBI

(a) Commercial banks are permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing;

(b) Brokers registered with the Securities and Exchange Board of India (SEBI) and authorized as market makers in corporate bond market permitted to undertake repo / reverse repo contracts in corporate debt securities.

(c) Banks allowed to increase the partial credit enhancement they provide for corporate bonds to 50 per cent from 20 per cent. This move will help lower-rated corporates to access the bond market;

(d) Permitting primary dealers to act as market makers for government bonds

(e) To ease access to the foreign exchange market for hedging in over the counter (OTC) and exchange-traded currency derivatives, the RBI has allowed entities exposed to exchange rate risk to undertake hedge transactions with simplified procedures, up to a limit of US$30 million at any given time.

Foreign Portfolio investments:

Negative, (outflow from India) for the first time, since the Global Financial Crisis of 2008.

Why?

FPIs pulled out of most Emerging Market Economies (EMEs) in a big way due to higher returns in advanced economies.

Balance of Payments:

India’s current account deficit continued to decline.

Why?

1. The downward spiral in international crude oil prices resulted in a decline in oil import bill by around 18 per cent.
2. Sharp decline in gold imports led to a reduction in India’s overall imports

External debt:

World Bank’s annual publication titled ‘International Debt Statistics 2017’, which contains the external debt data for the year 2015, indicates that India continues to be among the less vulnerable countries.

INITIATIVES TO FACILITATE INVESTMENT & EASE OF DOING BUSINESS:

1. Initiatives such as Make-in-India, Invest India, Start Up India and e-biz Mission Mode Project under the National e-Governance Plan.
2. Measures to facilitate ease of doing business include online application for Industrial License and Industrial Entrepreneur Memorandum through the eBiz website 24×7 for entrepreneurs;
3. Simplification of application forms for Industrial Licence and Industrial Entrepreneur Memorandum;
4. Limiting documents required for export and import to three by Directorate General of Foreign Trade; and
5. Setting up of Investor Facilitation Cell under Invest India to guide, assist and handhold investors during the entire life-cycle of the business.

SOCIAL SECTOR EXPENDITURE: (You can quote the figure for essay or GS Mains)

EMPLOYMENT SCENARIO:

• Overall employment increased by 135 thousand.

Major contributors include:

IT/BPOs sector, textiles including apparels and metals.

Employment, however, declined in gems & jewellery sector, handloom/powerloom sector, leather, automobiles sectors and transport sector

There is a clear shift in employment to secondary and tertiary sectors from the primary sector.

Labour sector is plagued by multiplicity of laws – At present, there are 39 Central labour laws which have been broadly proposed to be grouped into four or five Labour Codes on functional basis.

EDUCATION SECTOR:

Issues include low learning outcomes, which has been caused by teacher absenteeism and the shortage of professionally qualified teachers.

* An option to address teacher absenteeism that can be explored is biometric attendance of all teachers in primary schools for each scheduled class/lecture/session/ distinct from the present system, where it is morning and evening to ostensibly record arrival and departures

Apart from the biometric attendance being regularly monitored by local communities and parents, it should also be put in public domain.

This should be backed by adequate teaching aids, recorded lectures, etc. to fill in for absentee teachers.

HEALTH:

The aim of good health and well being for all as envisaged in the Sustainable Development Goal (SDG) 3, “Ensure healthy lives and promote well being for all at all ages”

• Life expectancy has doubled and infant mortality and crude death rates have reduced sharply.
• India’s total fertility rate (TFR) has been steadily declining.
• Infant Mortality Rate (IMR) has declined to 37 per 1000 live births in 2015 from 44 in 2011. (Though gap exists between rural and urban IMR).
• The Maternal Mortality Ratio (MMR) declined from 301 maternal deaths per 100,000 live births during 2001-03 to 167 maternal deaths per 100,000 live births during 2011-13. (Region or state wise disparities are present).

* The high levels of anaemia prevalent among women in the age group 15-49 have a direct correlation with high levels of MMR – Under the National Health Mission, Government of India has programmes to address the issue of anaemia through health and nutrition education to promote dietary diversi cation, inclusion of iron foliate rich food as well as food items that promote iron absorption.

The Economic Survey 2016-17 also comes out with a Health outcome Index.

INCLUSIVE POLICIES OF GOVERNMENT:

Economic Survey 2016-17 points out the following policies as inclusive policies :

• Accessible India Campaign (Sugamya Bharat Abhiyaan)

* The Department of Empowerment of Persons with Disabilities (DEPwD) launched ‘Accessible India Campaign (Sugamya Bharat Abhiyan)’

Objective: Nation-wide Campaign for achieving universal accessibility for Persons with Disabilities (PwDs).

Focus on three verticals:

• Built Environment,

• Public Transportation and Information &

• Communication Technologies.

‘Inclusiveness and Accessibility Index’ helps the industries and corporates to participate in the Accessible India Campaign (AIC) by voluntarily evaluating their readiness for making the workplace accessible for PwDs.

“Rights of Persons with Disabilities Bill – 2016” passed by the Parliament aims at securing and enhancing the rights and entitlements of PwDs. The bill has proposed to increase the reservation in vacancies in government establishments from 3 per cent to 4 per cent for those with benchmark disability and high support needs.  

1. For social empowerment, the ‘Nai roshni’ scheme for leadership development of minority women,
2. ‘Padho Pardesh’, a scheme of interest subsidy on educational loans for overseas studies for the students belonging to the minority communities,
3. For skill development and economic empowerment of minorities, schemes like ‘Seekho Aur Kamao’ (Learn & Earn),
4. Upgrading Skill and Training in Traditional Arts/Crafts for Development (USTTAD) and
5. ‘Nai Manzil’- a scheme to provide education and skill training to the youth from minority communities are in operation.

INDIA ON CLIMATE CHANGE:

India ratified the Paris Agreement on 2nd October 2016. India’s comprehensive NDC target is

• To lower the emissions intensity of GDP by 33 to 35 per cent by 2030 from 2005 levels,
• To increase the share of non-fossil fuels based power generation capacity to 40 per cent of installed electric power capacity by 2030, and
• To create an additional (cumulative) carbon sink of 2.5–3 GtCO2e through additional forest and tree cover by 2030.

India’s renewable energy sector is undergoing transformation with a target of 175 GW of renewable energy capacity to be reached by 2022. In order to achieve the target, the major programmes/ schemes on implementation of Solar Park, Solar Defence Scheme, Solar scheme for Central Public Sector Undertakings, Solar photovoltaic (SPV) power plants on Canal Bank and Canal Tops, Solar Pump, Solar Rooftop, etc. have been launched.

Government has amended the National Tariff Policy for electricity (Jan 2016). The Tariff Policy amendment has a focus on the environmental aspect.

With India’s initiative, International Solar Alliance (ISA) was launched, which is envisaged as a coalition of solar resource-rich countries to address their special energy needs and will provide a platform to collaborate on addressing the identified gaps through a common, agreed approach. 24 countries have signed the Framework Agreement of ISA.

Government of India has established the National Adaptation Fund for Climate Change to assist States and Union Territories to undertake projects and actions for adaptation to climate change.

India is also one of the few countries in the world to impose a tax on coal. This coal cess, which has been renamed as “Clean Environment Cess” in the Union Budget 2016-17 funds the National Clean Environment Fund (NCEF).

* The proceeds of the NCEF are being used to finance projects under

• Green Energy Corridor for boosting up the transmission sector,

• Namami Gange,

• Green India Mission,

• Jawaharlal Nehru National Solar Mission,

• Installation of SPV lights and small capacity lights,

• installation of SPV water pumping systems, SPV Power Plants and Grid Connected Rooftop SPV Power Plants.

Also Read : Top 10 Key Highlights of Economic Survey 2016-17 for UPSC Aspirants

Also Read: Chapter wise highlights of Economic Survey 2016-17

Chapter 01 – Economic Outlook and Policy Challenges

Chapter 02 – The Economic Vision for Precocious, Cleavaged India

Chapter 03 – Demonetization: To Deify or Demonize?

Chapter 04 – The Festering Twin Balance Sheet Problem

Chapter-05 – Fiscal Framework: The World is Changing, Should India Change Too?

Chapter 06 – Fiscal Rules: Lessons from the States

Chapter 07 – Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?

Chapter 08 – Review of Economic Developments

Chapter 09 – Universal Basic Income

Chapter 10 – Income, Health, and Fertility: Convergence Puzzles

Chapter 11 – One Economic India

Chapter 12 – India on the Move and Churning

Chapter 13 – The ‘Other Indias’ – Highlights of Economic Survey 2016-17

Chapter 14 – From Competitive Federalism to Competitive Sub-Federalism